NY governor to request federal probe of Long Island utility

Reuters Staff

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New York Governor Andrew Cuomo signs the New York Secure Ammunition and Firearms Enforcement Act at the Capitol in Albany, New York January 15, 2013.Hans Pennink

NEW YORK (Reuters) - New York Governor Andrew Cuomo said on Sunday he will ask federal prosecutors to review a report that found "breathtaking waste and inefficiency" in the state-owned Long Island Power Authority's dealings with a private consulting firm.

A scathing New York commission report released on Saturday found questionable billing practices and a troubling "revolving door" relationship between the state-owned utility and Navigant Consulting Inc, which may have been a breach of state ethics laws.

Cuomo said the state would refer its investigation to federal prosecutors.

Last week, New York approved legislation to mostly dismantle the utility, known as LIPA, which was criticized for an inept response to Superstorm Sandy last October, when more than 90 percent of the 1.1 million LIPA customers on Long Island were left without power, some for more than two weeks.

Public Service Enterprise Group Inc, a private utility in neighboring New Jersey, will take over management of LIPA's operations and LIPA will in effect be reduced to a holding company.

"The findings released today raise a series of questions regarding LIPA's management of a consulting contract that passed unexplainable costs to ratepayers and involved exorbitant expenditures that appear to have nothing to do with providing power to Long Island residents," Cuomo said in a statement.

In a statement, Navigant said the company had not been aware of the commission's findings until the report was publicly released and that it would "fully cooperate" with authorities.

"We take the questions raised by the commission in its report very seriously and are closely reviewing the facts related to each question in detail," the statement said.

The commission found "breathtaking waste and inefficiency" in LIPA's operations and said the utility was "woefully unprepared" to manage the threat posed by major storms.

The report also noted that, despite LIPA's limited charge - it contracted NationalGrid to carry out its day-to-day operations - LIPA paid for a wide range of high-priced legal and engineering consultants, but failed to monitor billing, including unusually high hourly rates and billable hours.

In one case, a Navigant consultant charged LIPA for a trip from Washington, D.C., to Puerto Rico, and for a seaplane flight from San Juan to a remote resort island. No explanation for the trip was provided, the commission found.

The practice of employees from both LIPA and Navigant going to work for the other organization also raised questions, the report said.

For example, LIPA's former chief operating officer and acting chief executive officer, Michael Hervey, joined Navigant one month after leaving the utility in late 2012, and now serves as Navigant's energy consultant director.

"This revolving door is particularly problematic since LIPA lacked any central controls for reviewing consultant/contractor charges and protecting against conflict of interests or appearances of impropriety," the commission wrote.